India providing silver lining with spectacular Q3 GDP growth at 8.4%

This financial year all three quarters real GDP growth has been above 8% mark. There has been downward revision in FY 23 GDP numbers by 25 bps, the fiscal deficit of FY 24 as% of GDP will now be revised upwards to 5.9% from 5.8% of GDP

The Ministry of Statistics & Programme Implementation released the second advance estimates of National Income 2023-24, quarterly estimates of Gross Domestic Product (GDP) for the third quarter (October - December ) 2023-24 along with first revised estimates of national income, consumption expenditure, savings and capital formation, 2022-23.

And this had a surprising but welcome observations. Contrary to the expectations that for Q3 for 2023-24, the real GDP growth will be in the range of 6 to 6.5%, the real GDP grew by 8.4% in the period. Even figures pertaining to Q1 and Q2 of 2023-24 have been revised upwards to 8.2% and 8.1%, respectively.

This reinforces the fact that while the global economy has not been growing to the required levels, India has been able to withstand all the global concerns and has been able to register impressive performance of 8.2%, 8.1% and 8.4% in the first three quarters of the financial year 2023-24, which is quite remarkable when taken under any yardstick. This indicates that the government policies of supporting growth through large capex and providing the momentum for private sector to take advantage of these capex have yielded positive results.

The manufacturing sector has registered a growth of 11.6% in Q3 2023-24 over and above the last quarter Q2 growth of 14.4%. Similarly, the construction sector has shown a growth of 9.5% in Q3 as against Q2 of 13.5% and Q1 of 8.5%. Mining and quarrying sector registered a growth of 7.5% this quarter as against 11.1% in Q2 and 7.1% in Q1; electricity & other services grew at 9% in Q3 as against 10.5% and 3.2%; trade, hotels, transport and other services have shown a growth of 6.7% in Q3 as against 4 5% and 9.7%, respectively; financial, real estate and professional services registered a growth of 7% in Q3 as against 6.2% and 12.6%; public administration, defence & other services registered 7.5% growth in Q3, as against 7.7% in Q2 and 8.2% in Q1.

Of course, there was negative growth of agriculture, livestock, forestry and fishing at 0.8% this quarter (Q3) as against 1.6% in Q2 and 3.5% in Q1.

The low growth of agriculture is not a good sign in the given situation as it had grown at 5.2%, 2.3% and 2.7% in Q3, Q2 and Q1 of 2022-23 .The current climate change and heat weather, excessive and deficient rainfall must have caused negative growth in agriculture, livestock and the likes this quarter.

That water storage in 60% of reservoirs will be below 50% capacity is bound to further impact water availability, which will add to the woes of agriculture. The shortfall in agriculture will have an impact on rural income growth, thereby hitting rural consumption.

Meanwhile, GVA at basic prices grew by 6.5% in this quarter as against 8.4 real GDP growth, having wide gap between GDP and GVA growth due to the Rs. 3.9 lakh crore net indirect taxes (32% y-o-y growth).

It may be noted that there have been sharp revisions (both upward and downward) in the previous yearly and quarterly numbers. The FY 22 & FY 24 numbers have been revised upwards by 64 points and 26 bps, respectively while for the current fiscal, the Q1 & Q2 numbers have been revised upwards by 49 bps and 44 bps, respectively. This financial year all three quarters real GDP growth has been above 8% mark. There has been downward revision in FY 23 GDP numbers by 25 bps, the fiscal deficit of FY 24 as% of GDP will now be revised upwards to 5.9% from 5.8% of GDP.

Private final consumption expenditure (PFCE) is at 58.6 share in GDP in Q3 2023-24: against 55.9% in Q2 and 55.8% in Q1. The Government Final Consumption expenditure (GFCE) stood at 7.8% share in GDP in Q3 against 9.2% and 10.2% share in GDP in Q2 and Q1 respectively. Gross fixed capital Formation (GFCF) is slightly lower this quarter at 32.4% as against 34.3% and 34.6% in Q2 and Q1 respectively. Exports & Imports forms 22.2% and 24% respectively of GDP as at Q3 23-24.

The estimated GDP growth for FY 2024 has now been revised from 7.3% to 7.6% in the background of last three quarters of FY 24 showing remarkable high growth exceeding 8%. This leads to a growth of 5.9% GDP growth for the last quarter which is likely to exceed as we see from the earlier quarter performance and hence the current estimated GDP at 7.6% for full year may stretch to near to 8%. Of course, this will be dependent upon pick in private consumption and private investments. The current forecast by RBI is at 7% for FY 2024 and IMF at 6.7% and NSO revised estimate is at 7.6%.

In the light of higher than expected GDP growth, evidence of sustainable investment activity in the economy, rise in imports of capital goods, expansion in manufacturing capacity utilisation and increase in investment by private nonfinancial companies, urban demand remains resilient while rural demand is growing steadily if not spectacularly, observed chief economic adviser V. Anantha Nageshwar.

The central government has been prudent in expenditure and continues to be so in fiscal space. The Central government contained its fiscal deficit in the first 10 months of the 2023-24 at 63.6% of the revised annual target as against 67.8% a year ago, putting a control on revenue spending amid improved revenue mop up.

Another data released by the government states that the core sector expanded 3.6% in January, its slowest pace in 15 months, weighted down by a high base and mixed performance across sectors. The core sector had grown 4.9% in the previous month and 9.7% a year earlier.

India's GDP growth at 8.4% in Q3 is much higher than the 5.2% of China, 5% of Indonesia, 3.1% of USA, 2.5% of Mexico, 1% of Japan, 0.7% of France negative 0.2% of UK and negative 0.4 % of Germany.

India has the potential to achieve 8 to 8.5% GDP on sustainable basis and if we continue to give momentum to all sectors in greater manner with additional public and private sector investment, enhancing savings and investment of both public and private, thereby having enhanced consumption both at urban areas and rural areas, with equal and additional focus on export led growth, we will certainly be able to sustain and enhance GDP growth. With favourable government policies, it is quite likely that the FDI flow will be higher, which will help in boosting manufacturing along with physical infrastructure. The next decade will be very much important to India. Let us trust and hope with the focus of the Central and state governments on productive and prosperous economic growth, Modi’s vision will become a reality with the active involvement of all stakeholders in the nation's growth story.

(The author is former Chairman & Managing Director of Indian Overseas Bank)